Healthy Skepticism Library item: 14985

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Publication type: news

Cronin Fisk M, Lopatto E.
Lilly May Spend $2 Billion More on Zyprexa Lawsuits
Bloomberg.com 2009 Jan 28
http://www.bloomberg.com/apps/news?pid=20601103&sid=awN3f5PDni_g&refer=news

Full text: Eli Lilly & Co., after agreeing to spend more than $2.6 billion to settle government and individual claims over its antipsychotic Zyprexa, still faces lawsuits over the drug that might cost the company another $2 billion.

Lilly, based in Indianapolis, said Jan. 15 it had settled state and federal accusations of illegal sales practices for $1.42 billion, taking a charge of $1.29 a share. The company previously agreed to pay $1.2 billion to settle about 31,000 patients’ lawsuits.

Not part of the settlements were suits by 12 states and a class-action case brought by pension funds, insurance companies and labor unions seeking as much as $6.8 billion. Two state trials are set for this year. Settling all 12 might cost the company another $2 billion, and going to trial would cost more, said Patrick Burns, a spokesman for Taxpayers Against Fraud.

“The total nut on this could be four or five billion” if the company settles, Burns, who tracks the suits, said in an interview. “Their cheapest way of clearing the decks is to settle.”

Burns’s Washington-based group promotes lawsuits to fight fraud against the U.S. government.

The states claim Lilly withheld information about the side effects of Zyprexa, such as diabetes, and encouraged sales of the drug for unapproved, or off-label, purposes. The states asked for damages and fines for violation of laws against deceptive practices and false claims.

Company: Claims Meritless

“We believe their claims are without merit, and that’s why we’re prepared to go to court,” Marni Lemons, a spokeswoman for Lilly, said. She wouldn’t comment on how much more Lilly may spend to settle suits.

The non-settling states are continuing to litigate because the company’s offers are too low, said attorney David Stallard, who represents Utah.

“If Utah settled, the amount we would have gotten would be about $1.3 million,” Stallard said. “The damages we actually had are more like $150 million.”

The states are seeking reimbursement for the costs of prescriptions and alleged costs to Medicaid programs for patients who developed diabetes or other injuries from using Zyprexa.

Utah would be entitled by law to three times damages plus penalties of as much as $10,000 for each Zyprexa prescription written, Stallard said.

Lilly’s guilty plea to a criminal charge of improper marketing strengthens the remaining cases, said Tommy Fibich, a lawyer for six states including Pennsylvania and South Carolina.

Guilty Plea

“How does a company defend itself after pleading guilty?” Fibich asked in an interview. “It doesn’t get much better than a guilty plea.”

The plea “was related to a very narrow time frame,” Lemons, the company spokeswoman, said in a telephone interview.

The first trial on a state’s Zyprexa claim ended in March with Lilly agreeing to pay Alaska $15 million. Two trials are scheduled for this year, in the Connecticut case in June and South Carolina in August. The Connecticut trial probably will be postponed because of delays in evidence-gathering, Fibich said.

Additional costs probably wouldn’t affect the company’s shares, said analyst Jon Fisher, a portfolio manager for Fifth Third Bank who doesn’t own Lilly stock.

A $2 billion bill would be the equivalent of $1.76 a share, or 38 percent of 2008 third-quarter revenue. Shares fell 24 percent in the past year. They rose 48 cents today to $39.09 in New York Stock Exchange composite trading.

Known Risk

“Based on what people know now, I’d say the risk is priced into the stock,” Fisher said. “This is going to go on for a long time.”

Lilly shareholders are more concerned with seeing new products on the market than additional settlements, analyst Les Funtleyder at Miller Tabak said.

Research and development might be “hurt by a big settlement,” he said. “Money spent on litigation is money not spent on R&D, and if it does strain resources, that’s obviously a negative.”

The Jan. 15 settlement concluded investigations by the U.S. Attorney’s Office in Philadelphia and Medicaid fraud units in more than 30 states.

About $362 million will go to states to end Medicaid investigations, including about $30 million to Texas, $44 million to Illinois and $26.4 million to Michigan. These states didn’t sue.

‘Modest’ Settlement

“I don’t know why these states settled for what I consider a modest amount,” Fibich said. “Lilly’s plea was to improper marketing, and that’s exactly what we’re talking about. The amount of the settlement certainly indicates great culpability and great damages.”

Lilly also faces a class action brought by insurance companies, pension funds and labor unions claiming it overpriced Zyprexa by making excessive claims about the drug’s usefulness. The plaintiffs are seeking damages up to $6.8 billion.

U.S. District Judge Jack Weinstein in Brooklyn, New York, in September allowed the plaintiffs to sue Lilly as a group and found there was “sufficient evidence of fraud” by Lilly to justify a trial.

Lilly has appealed Weinstein’s decisions granting class certification and denying the company’s motion to end the case without a trial. Lilly denies any fraud and contends the claims by the plaintiffs are too disparate to be combined. A New York appeals court has agreed to hear the appeal.

The Connecticut case is State of Connecticut v. Eli Lilly Co., 2:08-cv-00955, U.S. District court, Eastern District of New York (Central Islip). The criminal case is U.S. v. Eli Lilly Co., 2:09-00020, U.S. District Court, Eastern District of Pennsylvania (Philadelphia). The insurance case and most state lawsuits are part of In Re: Zyprexa Products Liability Litigation, 1:04-01596, U.S. District Court, Eastern District of New York (Brooklyn).